The bulls are back in town

April 6, 2015 08:41 AM
Weekly Energy Analysis

Ultra bears are throwing in the towel as a bottom in crude oil is starting to develop. Oil prices soared after a dismal jobs report and signs that demand in Asia is improving, and the hopes of a quick return of Iranian oil to the market is off the table. Hedge fund and speculators are now embracing the long side as the prediction of and the resumption of the epic crude price collapse is now not very likely.

Saudi Arabia raised prices for Asian buyers for the second month in a row in a strong sign that lowered interest rates in China, India and South Korea are boosting demand. One of the main factors in my oil bottom call was the inevitable demand boost we would get from global quantitative easing and lowered interest rates. We are already seeing signs of that in economic data in Europe and in Asia. If the Saudis feel confident enough to raise prices again it is clear that demand must be improving.  

The framework for a deal with Iran is not a deal. If you were shorting oil on the idea that Iranian oil would flood an oversaturated market well you better rethink that. It looks like the earliest we could have a deal with Iran will be the June 30 deadline. It is unlikely they will make that deadline. Then you will have to get congressional approval and that will take time, if you get it at all. Then you have to get the weapon inspectors in. Then they have to give Iran a clean bill of health. It may be a year at the earliest that we will see that Iranian crude hit the market and by that time the oil glut should ease.

The U.S. jobs picture is slowing and layoffs and the slowdown in energy job creation is starting to take its toll nationally, if not directly from job losses but the trickledown effect of the lack of new high paying jobs in the country. On Good Friday the labor report showed that nonfarm payrolls grew by a pathetic 126,000 less than half of what was expected while the overall unemployment rate remained at 5.5%. It is estimated by one source that the energy sector lost 40,000 jobs most of which were high paying jobs that helped spur other parts of the economy. The jobs that replaced them were in retail and much lower paying gigs. This comes after Baker Hughes reported that the U.S. oil-rig count fell for the 17th consecutive week by 11 to 802. Some said it was a good thing that the rate of decline was slowing but it had to slow because if rigs kept dropping at the same rate we would not have any rigs.

Gold prices are also rising as the weak jobs data makes gold look more attractive. A lot has been made on Goldman Sachs report that the world has only 20 years of known minable reserves of gold, diamonds, zinc and some are buying on fears we may run out. Of course like "peak oil," peak gold won't happen either. We will see new innovations that will fine more of those precious commodities assuming the price gets high enough.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.